Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A minimum price set by the government, leading to surplus in the market.
B
A maximum price set by the market, leading to shortages.
C
A minimum price set by the government, leading to equilibrium in the market.
D
A maximum price set by the government, leading to surplus.
Understanding the Answer
Let's break down why this is correct
Answer
A price floor is a minimum price set by the government for a good or service, which means that sellers cannot sell it for less than this price. This is often used to protect producers, ensuring they earn enough money to cover their costs. In a competitive market, if the price floor is above the equilibrium price, it can lead to a surplus, meaning there will be more products available than people want to buy at that price. For example, if the government sets a price floor for milk at $3 per gallon, but the normal market price is $2, farmers might produce more milk than consumers are willing to buy, leading to excess milk that could go unsold. Overall, while price floors help producers, they can also create challenges like wasted resources and higher prices for consumers.
Detailed Explanation
A price floor is a minimum price set by the government. Other options are incorrect because This option confuses price floors with price ceilings; This option suggests that a price floor leads to balance in the market.
Key Concepts
Price floor
Topic
Price Floors in Competitive Markets
Difficulty
easy level question
Cognitive Level
understand
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